Asia ex-Japan rates relative to US rates Report Interpretation

Overview

Nomura’s Asia ex-Japan rates strategy says any outperformance versus US rates is likely to be selective rather than broad-based. Its preferred expressions are Korea receive and long-end Hong Kong rates versus Singapore, while India is neutral pending GDP-related opportunities and Thailand remains positioned for higher rates and curve flattening.

Core views

The report starts from a more hawkish US rates backdrop. After Fed Chair Warsh’s Jackson Hole remarks, front-end US rates repriced to 1.5 hikes by year-end, while renewed US military strikes on Iran added uncertainty. Nomura’s US economics team still expects the Fed to keep policy rates unchanged, but sees high sensitivity to near-term inflation data. If the Fed were to hike in September, Asian rates performance would also depend on oil and US-dollar moves. Nomura expects markets where central banks have already raised rates, such as Korea, to be better able to outperform; markets where hikes have not begun but pressure is increasing, such as Taiwan or India, could face a lower bar for domestic tightening and may not outperform. Nomura re-enters a receive position in Korea through H27-5y NDiRS at 4.075%, targeting 3.87% and reassessing above 4.17%, with conviction 3/5. The reasoning is that the Bank of Korea delivered near-term dovish guidance at its latest meeting even while remaining hawkish over the medium term. With two hikes already completed, a likely October pause, and USD/KRW significantly lower than a couple of months earlier, the report sees room for Korean rates to outperform. The report also maintains its recommendation to receive 5y5y Hong Kong rates versus Singapore rates, again with conviction 3/5, despite the spread remaining wide against Nomura’s view. It argues that Singapore rates, including the long end, are too low given its economists’ rising growth and inflation outlook and signs of higher SORA fixings. For Hong Kong, USD/HKD has not yet moved materially toward 7.85, and non-financial Hong Kong bond issuance is expected to remain low at elevated yields. Nomura adds that a more hawkish Warsh could bring at least short-term stability to long-end US yields, supporting Hong Kong-rate outperformance against other Asia ex-Japan markets. India rates sold off on US-rate and oil moves as well as expectations of RBI tightening after stronger-than-expected IP data. Nomura’s economists forecast Q2 GDP growth of 7.8%, above consensus. The RBI’s liquidity operations reinforced the normalization message: a 15-day VRRR drew INR1.35trn against INR6trn planned, followed immediately by an overnight INR4trn VRRR that received INR2.5trn in bids. Markets already largely price 25bp hikes in both October and December and roughly 100bp of hikes over the next 12 months, with some front-loading. Nomura therefore stays neutral initially, but would watch for tactical opportunities to fade an overshoot if GDP is also strong, as rates can overshoot before the first hike relative to the tightening ultimately delivered. For Thailand, Nomura continues to hold a 5y pay position and a 5s10s flattener, both with conviction 3/5. It sees limited downside for Thai rates in an environment of high global rates, even though Thai rates have struggled to move higher. Comments from BOT Governor Vitai Ratanakorn that policy rates need not remain on a prolonged pause could create later volatility. As the 5s10s spread shows signs of peaking, Nomura shifts the pay-5y position from Jun27-5y to Dec26-5y; the stated current levels are 1.88% and 1.755%, respectively.

Analysis framework

Nomura compares Asian rate markets with the US policy outlook, then evaluates country-specific central-bank settings, inflation and growth trends, currency and oil sensitivity, liquidity conditions, issuance, and curve or cross-market spreads. It expresses those views through directional receive/pay trades and relative-value curve and cross-market positions.

Methodology notes

• Fixed Income and CreditYield curve analysis

  Curve and cross-market relative-value analysis

  The report uses the shape of Thailand’s 5s10s curve and the Hong Kong-versus-Singapore rate spread to choose flattener and relative-value trade structures.

• Macroeconomics

  Macro-policy transmission to regional rates

  The report links expected Fed actions, local central-bank policy, inflation, growth, oil, liquidity and currencies to the likely relative performance of Asian rates markets.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Korea H27-5y NDiRS

  Receive position intended to benefit from Korean rates outperformance.

  Strengths

  Near-term dovish BOK guidance, two hikes already completed, likely October pause, and lower USD/KRW.

  Weaknesses

  BOK remains hawkish over the medium term.

  Comparison

  Expected to outperform markets where domestic hikes have not begun.

  Risks

  Reassess the trade above 4.17%.

• 5y5y Hong Kong rates versus Singapore rates

  Receive Hong Kong rates relative to Singapore rates.

  Strengths

  Nomura considers Singapore long-end rates too low; Hong Kong issuance is expected to remain low at elevated yields.

  Weaknesses

  The spread has remained wide against Nomura’s view.

  Comparison

  Expected to outperform other Asia ex-Japan markets if long-end US yields stabilize.

  Risks

  Outcome remains sensitive to USD/HKD progress and the US-yield backdrop.

• India rates

  Neutral pending potential tactical opportunities to fade an overshoot.

  Strengths

  Markets already price substantial tightening.

  Weaknesses

  Stronger IP data, a 7.8% Q2 GDP forecast, and RBI liquidity normalization support tightening concerns.

  Comparison

  May not outperform if a Fed hike lowers the bar for RBI tightening.

  Risks

  Strong GDP could intensify the sell-off before creating a fade opportunity.

• Thailand 5y and 5s10s

  Maintain a pay-5y position and a 5s10s flattener.

  Strengths

  Nomura sees limited rate downside amid high global rates and a curve spread showing signs of peaking.

  Weaknesses

  Thai rates have struggled to move higher.

  Comparison

  Pay position shifted from Jun27-5y to Dec26-5y.

  Risks

  Potential policy volatility following comments from the BOT governor.

Key data

• US front-end rate repricing1.5 hikes by year-endRepricing after Fed Chair Warsh’s hawkish Jackson Hole remarks.
• Korea H27-5y NDiRS4.075% entry; 3.87% target; reassess above 4.17%Re-entered receive trade; conviction 3/5.
• India Q2 GDP forecast7.8%Nomura forecast, above consensus.
• India VRRR operationsINR1.35trn of INR6trn planned; subsequent INR4trn overnight VRRR received INR2.5trn in bidsCited as evidence of RBI liquidity normalization intent.
• India policy tightening priced25bp in October, 25bp in December, and roughly 100bp over the next 12 monthsThe report says pricing includes some front-loading.
• Thailand 5y levelsJun27-5y 1.88%; Dec26-5y 1.755%Nomura switches its pay position from Jun27-5y to Dec26-5y.

Impact & implications

Nomura does not expect a single Asia-wide rates outcome from a potentially more hawkish Fed. It favors markets with completed tightening or supportive local technicals, while warning that markets approaching their first hikes can underperform or overshoot. Its positioning therefore combines Korea and Hong Kong relative-value exposure with neutral India and Thai pay/flattening exposure.

Risks

• A September Fed hike would make Asian relative performance dependent on oil and US-dollar moves as well as local policy settings.
• Korean rates remain exposed to the BOK’s medium-term hawkish stance.
• The Hong Kong-versus-Singapore spread has remained wide against Nomura’s view.
• Strong Indian GDP could extend rate-market overshooting before the first RBI hike.
• Thai policy commentary could introduce volatility.

What to watch

• Near-term US inflation data and whether the Fed hikes in September.
• The BOK’s October policy decision and USD/KRW movements.
• SORA fixings, USD/HKD movement toward 7.85, Hong Kong non-financial bond issuance, and long-end US yields.
• India’s Q2 GDP release, RBI liquidity operations, and the extent of tightening priced by markets.
• Thailand’s 5s10s curve and subsequent signals from the BOT.